Storico Co. just paid a dividend of $2.65 per share. The company will increase itsdividend by 20 percent next year and will then reduce its dividend growth rate by 5percentage points per year until it reaches the industry average of 5 percent dividendgrowth, after which the company will keep a constant growth rate forever. If therequired return on Storico stock is 12 percent, what will a share of stock sell for today?

Question

Storico Co. just paid a dividend of $2.65 per share. The company will increase its
dividend by 20 percent next year and will then reduce its dividend growth rate by 5
percentage points per year until it reaches the industry average of 5 percent dividend
growth, after which the company will keep a constant growth rate forever. If the
required return on Storico stock is 12 percent, what will a share of stock sell for today?

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